Fact File OFFSHORE ENDOWMENT INVESTMENT PLAN The Offshore Endowment Plan is built on the best thinking, the most tax efficient structures and the best investment strategies. This will enable you to take advantage of optimal investment opportunities all over the world. This Fact File will allow you to understand your Offshore Endowment Plan and how you can make it work better for you.
WELCOME Discovery Invest s Offshore Endowment Plan An endowment is a tax efficient structure where interest and rental income within your Offshore Endowment Plan are taxed at 30%, foreign dividends are taxed at 15% while capital gains, calculated based on the growth in rands, are taxed at 10%. This tax will be calculated and deducted by Discovery Invest against your policy on your behalf. When you realise your investment at the end of your investment term, no further tax will be payable (March 2015). The Offshore Endowment Plan gives you access to international investment funds, denominated in foreign currencies. This Fact File is designed for your easy reference. CONTENT 1. DISCOVERY INVEST OFFSHORE ENDOWMENT PLANS 1 2. OFFSHORE INVESTMENT INTEGRATOR 1 3. LUMP SUM PREMIUMS TO THE OFFSHORE ENDOWMENT PLANS 2 4. FEES APPLICABLE TO YOUR OFFSHORE ENDOWMENT PLAN 2 5. CHOOSING THE UNDERLYING FUNDS FOR YOUR OFFSHORE ENDOWMENT PLANS 3 6. BENEFITS TO PROTECT AND ENHANCE YOUR CLASSIC OFFSHORE ENDOWMENT PLAN 4 7. INVEST AWARE 5 8. REQUIRED DOCUMENTS 5 9. BUSINESS PRACTICES 5
1. DISCOVERY INVEST OFFSHORE ENDOWMENT PLAN Discovery Invest offers two Offshore Endowment Plans: The Core Offshore Endowment Plan. This plan offers a tax efficient investment structure and a wide range of offshore investment options that you may choose to invest in. The Classic Offshore Endowment Plan. In addition to the same tax efficient investment structure and range of offshore investment options as the Core Offshore Endowment Plan, the Classic Offshore Endowment Plan offers a range of unique benefits to enhance and protect your offshore investments. These benefits are detailed in section 6 of this Fact File. Throughout this Fact File, reference to the Offshore Endowment Plan refers to both the Core Offshore Endowment Plan and the Classic Offshore Endowment Plan. 1.1 You can structure your Offshore Endowment Plan with or without a life assured If you choose to have your Offshore Endowment Plan structured with a life assured, and the life assured dies before the end of the policy term the proceeds will become payable to the chosen beneficiaries. If you select to have your Offshore Endowment Plan structured without a life assured (ie. as a sinking fund), the investment will continue after your death until the end of the investment term or until earlier realisation. In this case ownership of your Offshore Endowment Plan will transfer to your testamentary beneficiaries. 1.2 You have full access to your Offshore Endowment Plan after the five-year restriction period If you have chosen the Core Offshore Endowment Plan, in terms of current legislation (March 2015), one withdrawal is allowed during the first five years of your policy. A withdrawal in the first five years may not exceed the contributions accumulated at 5% per year compound interest. After five years, you may make withdrawals from your investment as required. If you have chosen the Classic Offshore Endowment Plan, the same withdrawal conditions in the first five years apply as for the Core Offshore Endowment Plan. After five years you may also make withdrawals from your investment as required. However, any withdrawal in the first five years or withdrawal thereafter, may affect your unique Classic Offshore Endowment Plan benefits and should be done in consultation with your financial adviser. 2. OFFSHORE INVESTMENT INTEGRATOR Both the Core and Classic Offshore Endowment Plans could qualify for the Offshore Investment Integrator. If you have a Discovery Life Plan with a monthly premium above the minimum qualifying Life Plan premium, you could qualify for the Offshore Investment Integrator. The minimum qualifying Life Plan premium will be shown on your policy documents. The Offshore Investment Integrator provides you with a boost of 10% of your initial lump sum Offshore Endowment Plan premium. The size of the Offshore Investment Integrator is determined by multiplying your initial lump sum by the Offshore Investment Integrator percentage of 10%. The Offshore Investment Integrator will apply to all funds available on the Discovery Invest Offshore Endowment Plans. The Offshore Investment Integrator will grow at the same rate as the funds in your Offshore Endowment Plan. After five years, you will have the option of withdrawing 50% of the Offshore Investment Integrator plus growth or reinvesting it into your Offshore Endowment Plan. After 10 years the remainder of the Offshore Investment Integrator plus growth will become available to you. The Investment Integrator will be reduced if: You make withdrawals from the Offshore Endowment Plan. In this case the Offshore Investment Integrator will be reduced proportionately for the remainder of the term. You reduce your monthly Life Plan premium below the minimum qualifying premium at the inception of your Offshore Endowment Plan. In this case, the Offshore Investment Integrator will fall away and you will lose any future benefits from the Offshore Investment Integrator. Note: You will not qualify for the Offshore Investment Integrator if you increase your monthly Life Plan premium to the minimum qualifying premium or more after the start date of your Offshore Endowment Plan. Upon death within the 10-year term, a proportion of the Offshore Investment Integrator plus growth to the date of the death will be paid to your beneficiaries. The proportion that your beneficiaries will receive is calculated as follows: Death before the fifth anniversary of the policy 10% of the value of the Offshore Investment Integrator for each year or part thereof Death after the fifth anniversary but before the tenth anniversary of the policy 20% of the remaining value of the Offshore Investment Integrator for each year or part thereof after the fifth policy anniversary. The policy schedule that you receive from Discovery Invest will indicate if you qualify for the Offshore Investment Integrator or not. Please note that if the principal member on the Discovery Health Plan qualifies for the Offshore Investment Integrator, then all other dependants covered on the same Discovery Health Plan who take out an Offshore Endowment Plan will qualify as well. Discovery may review the minimum qualifying Life Plan premium for new policies. The total Offshore Integrator will be subject to Discovery s maximum limits. Please see your policy schedule for details. 1
3. LUMP SUM PREMIUMS TO THE OFFSHORE ENDOWMENT PLAN If you have chosen the Core Offshore Endowment Plan, you may make a once-off lump sum premium payment to your plan. This premium can be in South African rands, US dollars, pounds, euros or yen. You are also entitled to make occasional ad-hoc premium payments into your Core Offshore Endowment Plan. To prevent the start of a new five-year restriction period when an ad hoc premium is paid, the value of any ad hoc premium is limited so that the total premiums (including ad hoc premiums) in any given policy year will not be more than 120% of the greater of the premiums paid in the previous two years. If the premium is larger than this, a new Core Offshore Endowment Plan will have to be started with another five-year restriction period. If you have chosen the Classic Offshore Endowment Plan, you may make a once-off lump sum premium payment to your plan. This premium can be in South African rands, US dollars, pounds, euros or yen. Any ad-hoc premium payments that you make will be invested in a new Classic Offshore Endowment Plan. 3.1 Phasing in your lump sum premium Lump sum premiums may be phased in monthly. The total lump sum premium will be invested in a money market account. This premium amount (plus interest) will be divided by the number of phase-in periods you chose and the amount derived will be withdrawn in the first month from the money market fund and invested proportionately in the investment options selected. In the second month, the remaining amount will be divided by the number of phase-in periods remaining and invested. This will continue until all the money is phased in. You can choose to phase your investment in over a period of 3, 6, 9, 12, 15, 18, 21 or 24 months. Your selected phase-in period (if applicable) is shown on your policy schedule. 4. FEES APPLICABLE TO YOUR OFFSHORE ENDOWMENT PLAN There are certain fees on both the Core Offshore Endowment Plan as well as the Classic Offshore Endowment Plan. The fees are categorised into initial fees and annual fees and are payable to: Discovery Invest for administering your policy The trustee and custodian to cover these costs Your financial adviser for performing financial planning on your behalf The investment managers to the underlying investment choices you have selected. If you have chosen the Classic Offshore Endowment Plan an additional Protector Premium of 1.2% per year is payable to Discovery Life for providing the unique protections and enhancement detailed in section 6. The premium is a percentage of your investment fund and is deducted monthly as 1/12th of the annual Protector Premium. 4.1 Initial fees 4.1.1 Discovery Invest Initial Fees There are no initial administration fees payable to Discovery Invest. 4.1.2 Financial Adviser Initial Advice Fee Your financial adviser may charge an initial advice fee as a percentage of your lump sum contribution amount, which Discovery Invest will pay over to your financial adviser from your contributed amount. You can negotiate with your financial adviser to determine your initial fee. 4.1.3 Investment Manager Initial Fees Please remember that certain investment management companies may charge initial fees for investing in their funds. The initial fees applicable to each fund can be found on the respective fund fact sheets available on www.discovery.co.za. 4.2 Annual fees 4.2.1 Discovery Invest Annual Administration Fee You pay an annual administration fee of 0.5%. This fee is calculated based on the size of your investment fund. 4.2.2 Trustee and custodian fee You pay an annual fee of between 0.35% and 0.5% for trustee and custodian costs. This fee is also based on the size of your investment fund. 2
4.2.3 Financial Adviser Annual Advice Fees Your financial adviser may also charge an annual advice fee as a percentage of your investment fund value for managing your investment fund. Units will be redeemed on a monthly basis for this as 1/12th of the advice fee selected, increased by VAT. Discovery will deduct these from your investment and pay these over to your financial adviser. 4.2.4 Investment Manager Annual Fee The investment managers to your underlying investment choices will normally charge an annual management fee as a percentage of your investment in their fund. This fee is divided by 365 and deducted daily in the unit prices provided by the investment manager to Discovery Invest. The annual fees that apply to each fund can be found on their respective fund fact sheets available on www.discovery.co.za. 4.3 Switching fees You may switch between investment choices at any time, subject to Discovery Invest s practice at the time. The current practice (March 2015) allows four free switches per year. Additional switches will have a fee of 0.25% of the value switched. 5. CHOOSING THE UNDERLYING FUNDS FOR YOUR OFFSHORE ENDOWMENT PLAN 5.1 Investment choices that are available Your premium payment to the Offshore Endowment Plan will be invested in the underlying investment options that you have selected. The investment options selected and the apportionment of the premiums between these investment options will be shown on your policy schedule. If any of the underlying investment options are capped or don t exist anymore, Discovery Invest will request an instruction for a new selection from you. The funds available on the Offshore Endowment Plan are chosen to give you diversification by currency, geographic region and asset class. The funds are managed by some of the most experienced international fund providers and cover a range of investment themes and geographic regions. The funds are denominated in a range of currencies including: US dollars; Pounds; Euros; or Japanese yen. 5.2 Discovery s range of investment options 5.2.1 Discovery Invest Dynamo range Discovery Invest gives you access to the unique Discovery Invest Dynamo range offering a new approach to risk-profiled offshore investments. The Dynamo strategy aims to maximise your returns within a set risk appetite while giving you diversification across a range of asset classes and geographic regions. 5.2.2 Discovery Escalator Funds The Discovery Escalator Funds are designed to provide unlimited upside potential in bull markets, while offering downside protection in bear markets. You are protected at a level of at least 80% of the highest value the Escalator Fund has ever reached. This ensures that if markets are down when you want to realise your investment, you have the assurance that you will always have at least 80% of the highest value that the Escalator Fund has ever reached. The fund is calculated with reference to a mix of assets that dynamically rebalances between an underlying riskier asset and an offshore cash component on an ongoing basis. This rebalancing is done according to a defined algorithm. As the performance of the riskier asset improves, the allocation to the riskier asset increases. If the performance of the riskier asset falls, the allocation to the riskier asset decreases. Additional information regarding the provider of the guarantee and any credit risk associated with the Escalator Funds can be found on the relevant fund fact sheet at www.discovery.co.za 5.2.3 Other offshore funds Discovery Invest further gives you access to a wide range of offshore funds, in a variety of currencies. The offshore funds on offer are from a variety of internationally recognised fund managers, including: BNP Paribas, Credit Suisse, Fidelity, Franklin Templeton, Goldman Sachs and Deutsche Bank. Both single manager and fund of fund solutions are available. The funds on offer include bond funds, money market funds and equity funds focusing on a wide variety of investment themes and geographic regions. 3
6. BENEFITS TO PROTECT AND ENHANCE YOUR CLASSIC OFFSHORE ENDOWMENT PLAN If you have chosen the Classic Offshore Endowment Plan, you have automatic access to a range of benefits designed to protect and enhance you investment fund. There are three benefits: Offshore Capital Gains Tax Funder Offshore Asset Protector Offshore LifeBooster These three benefits are explained below. 6.1 Offshore Capital Gains Tax Funder The Offshore Capital Gains Tax Funder will assist you in funding your capital gains tax liability accrued across all funds selected on your Classic Offshore Endowment Plan. At the end of every five years that you remain invested in the Classic Offshore Endowment Plan, a lump sum payment will be made into your selected funds, based on your realised and unrealised capital gains after offsetting any realised and unrealised capital losses over the previous five year period. To calculate this lump sum payment, Discovery will multiply a rate of 10% by the calculated capital gains accrued. The benefit will apply to the first 75% of capital gains growth earned on your lump sum premium payment into the Classic Offshore Endowment Plan over each full five year period. The rate above as well as the maximum qualifying capital gains growth will be updated at Discovery s discretion from time to time in line with changes to taxation rates. Should you withdraw from your Classic Offshore Endowment Plan before the end of any five year period, the lump sum payments payable at the end of that five year period will be reduced proportionately. 6.2 Offshore Asset Protector The Offshore Asset Protector is designed to help protect your Classic Offshore Endowment Plan against poor investment performance resulting from poor fund performance and currency falls relative to the rand. At the end of every five years that you remain invested in the Classic Offshore Endowment Plan, a lump sum payment may be made into your selected funds depending on the performance of your investment fund. To calculate this potential lump sum payment at the end of a five-year period, three steps will be followed: 1. Discovery Invest will calculate the total five-year investment return in rands of your investment fund. 2. Depending on your five-year investment return, a percentage boost to your fund value will then be determined based on the following table: Investment fund performance over five years in rands Percentage boost Performance -20% 10% -20% < Performance -10% 7.5% -10% < Performance 0% 5% 3. The percentage boost will then be applied to your fund value at the end of the five-year period to determine the lump sum payment to be paid into your investment fund. The boosts above only apply to amounts invested for the full five-year period. You will not qualify for a boost to your fund if the return in rands over the five-year period of your Classic Offshore Endowment Plan is positive. 6.3 Offshore LifeBooster The Offshore LifeBooster is designed to assist your nominated beneficiaries in the event of your untimely death by paying them an additional amount in rands in South Africa based on your initial lump sum premium payment into the Classic Offshore Endowment Plan. The amount payable under this benefit will be a percentage of your initial lump sum premium payment into the Classic Offshore Endowment Plan. This percentage will depend on your age at death as per the following table: Next age at death Percentage boost Age 40 years 100% 40 years < age 45 years 80% 45 years < age 50 years 60% 50 years < age 55 years 40% 55 years < age 60 years 20% Age > 60 years 0% Withdrawals from your Classic Offshore Endowment Plan before your death will proportionately reduce the Offshore LifeBooster amount that will be payable at the time of your death. The benefit will not pay out if your death is caused directly or indirectly by a condition, illness, disability or impairment that existed before the investment was taken out. The benefit will not pay out in the case of suicide. You must complete a Discovery health questionnaire and be accepted through Discovery s underwriting panel in order to be eligible to receive this benefit. The Offshore LifeBooster will be subject to Discovery s maximum limits. Please see your policy schedule for details. 4
7. INVEST AWARE 7.1 What you should know about the Offshore Investment Integrator The integration benefits of the Offshore Investment Integrator is based on the taxation basis applicable to insurance companies at the present time. Should the taxation basis applicable to life assurance companies change in any manner at any time in the future, then Discovery Invest reserves the right to alter the Integration benefits accordingly to reflect the impact of the taxation changes. 7.2 What you should know about the Escalator Funds They are based on a riskier asset and a cash component. The riskier asset may be a Discovery unit trust, an external unit trust, an index or set of indices (the list of funds is available from Discovery Invest). The value of the fund at any point in time is based on the market value of both the underlying riskier asset and the cash component. The dynamic 80% protection level is based on the overall value of each Escalator Fund and not on the value of the riskier asset only. The protection applies at all times and not only at the end of a specified time. The financial protection that the Escalator Funds will not fall below 80% of the highest value reached (the protection level) is provided by Deutsche Bank or BNP, as the case may be, and not Discovery Life Limited or Discovery Life International. This means that the investor bears the risk if Deutsche Bank or BNP is unable to meet the guarantee for any reason whatsoever. The allocation between the riskier asset and the cash component is determined through an algorithm which enables the protection at any time. 8. REQUIRED DOCUMENTS To invest in the Discovery Core or Classic Offshore Endowment Plan, you must provide original or certified copies of your identity documents or passports as well as the relevant FICA documents (if previous FICA documents are older than three months). If applicable the original South African Reserve Bank clearance certificate as well as the South African Revenue Services clearance certificate may also be needed for additional investments. 9. BUSINESS PRACTICES 9.1 How should I issue instructions to Discovery Invest? Instructions must be given in writing on the relevant forms. These instructions must be given to Discovery Invest on fax 011 539 4001 or emailed to invest_international_support@discovery.co.za. Copies of the forms are available from us on 0860 67 5777. 9.2 Will I receive regular benefit statements on my investment? Discovery Invest will provide a quarterly statement of investment reflecting your investment values and all transactions during a specified period (or previous quarter). 9.3 What happens if an investment choice that I chose is unavailable? It may happen that Discovery Invest is unable to continue offering a certain investment option as an investment choice. In the event of this happening, Discovery Invest will inform investors accordingly and will request an instruction to select a new investment choice. 9.4 Misrepresentation The information given to Discovery Invest in your application form, or any other documents that you provide to support your application, forms the basis upon which your policy is issued. If you fail to disclose any information, or provide false information or distort information when applying for your policy, Discovery Invest will be entitled to suspend your policy and not pay any current or future claims that are related to the misrepresentation or non-disclosure. 9.5 Fraud Your policy and all its benefits will be cancelled if you: Provide false information to obtain a benefit Knowingly allow anyone acting on your behalf to provide false information to obtain a benefit. 5
9.6 Consent to disclosure You consent to the exchange of information, including medical information, between Discovery Invest, Discovery Life, any medical practitioner you have consulted or any other life office, Discovery Health and the Discovery Health Medical Scheme. 9.7 Contact details Please remember that in addition to talking with your financial adviser, if you have any questions or service needs, you can call us on 0860 67 5777. You can also visit www.discovery.co.za for additional resources and a downloadable version of this Offshore Endowment Plan Fact File (downloadable as a PDF file). 6
Discovery Invest 155 West Street Sandton PO Box 653574, Benmore, 2010 Contact centre 0860 67 57 77 Fax 011 539 5777 www.discovery.co.za The Offshore Endowment Plan Fact File is part of Discovery Invest s commitment to fairness and full compliance with legal requirements for financial service providers to provide detailed easy-to-understand information about how each product works. Each investor must consult their own financial adviser who must be an authorised financial services provider to advise the investor as to the suitability of the products and funds for the investor s personal investment needs. Discovery Life is a registered long-term insurer and an authorised financial services provider. Discovery Invest is an authorised financial services provider. Copyright Discovery Invest All rights reserved The Discovery Invest Offshore Endowment Plan is issued by Discovery Life International, the Guernsey branch of Discovery Life Limited (South Africa), licensed by the Guernsey Financial Services Commission under the Insurance Business (Bailiwick of Guernsey) Law 2002 to carry on longterm insurance business. The Discovery Invest Offshore Endowment Plan is also subject to the South African Long Term Insurance Act of 1998. The Discovery Invest Offshore Endowment Plans are administered by Discovery Life Investment Services (Pty) Limited trading as Discovery Invest, a subsidiary of Discovery Holdings Limited. An authorised financial services provider. The value of units may go down as well as up and past performance is not necessarily a guide to the future. Policyholders obtain the benefit of a policyholder protection scheme in terms of which Discovery Invest is required to hold assets representing at least 90% of policyholder liabilities in trust with an approved third party trustee. The Offshore LifeBooster is provided by Discovery Life in South Africa as a separate policy, but forms part of the Classic Offshore Endowment Plan package. IOEFFE 04/15 GM_31841DI_10/04/15_V1